Tuesday, 27 May 2014

The Economics behind Populist Parties in Europe

Voters kick up a
stink in the European elections but mainstream politicians only have themselves
to blame

The success of anti-EU parties in the European elections has
been in the news over the past week but it is economics that provides much of
the backstory. Voters in Europe have
flocked to political parties offering the illusion of a way of opting out of the
changes that threaten their livelihoods.
Such frustration is understandable considering that the more established
parties have only offered up piecemeal measures as a solution. Acceptance of the limited options available
will be the first step to making real progress.

Going with the flow

The economic prospects of those with few skills are
dire. Many of the sectors that provided
jobs for workers in earlier generations have shrunk due to the double whammy of
technology and globalization. Gains in
technology have seen a rise in the mechanization or computerization of many
tasks. Globalization has allowed firms
to search the world to find the cheapest workers. These are not trends that are expected to change
anytime soon.

Despite the large number of those put out by these trends,
the benefits for the economy as a whole have been unprecedented. Technology has brought a wealth of
information and possibilities to our fingertips and outsourcing has made the
bulk of things we buy much cheaper.
There is no one who has not gained in some way with the overall gains
far outweighing the costs. The problem
is that these costs are borne by a relatively limited number.

In an ideal world, some of the wide spread benefits would be
used to compensate those missing out due to the rise of technology and
globalization. However, governments in
the Western world have been moving in the opposite direction. People are increasingly left to fend for
themselves with few hand-outs from the government. The affected workers need money during
periods without work as well as help with reskilling to move into growing
industries. Yet, unemployment benefits
are being trimmed back and education is becoming more expensive.

Instead, governments look to shield themselves from the
blame, and since no one is going to come out against technology, globalization
is the obvious fall guy. The EU takes
the blame in Europe as the epitome of the uncontrollable external forces
pushing for more open borders. Rather
than admit that they are almost powerless in the face of outside influences
which are part of globalization, politicians offer temporary reprieves. Typical responses include attempts to limit
immigration, moves to block factory closures, railing against takeovers by
foreign firms, or moaning about a strong currency hurting exports. The failure of such actions to have any
substantive effect leaves governments open to criticism. Hence, the rise of political parties
proposing to do more.

A dose of honesty

The policies of populist parties will not offer any
long-term respite. It is possible for an
economy to shut itself off from the global economy. However, fighting against the tide of history
is not a long term option - a faster pace of economic growth in other countries
which are more open will inevitably reveal the folly of such isolation. Instead of being a viable alternative, the
anti-immigration political parties tend to function as a form of protest for
voters to vent their frustration at the status quo. But there is still the possibility of one of
these protest parties snatching power, likely with dire consequences.

The main remedy might be something as simple as a bit of
honesty. Politicians need to be more
open with voters about the limits of their policies. This would give them the scope needed to deal
with the negative effects of technology and globalization which need more than
ad hoc measures. Long term investment in
education and infrastructure will be key in terms of both dealing with the
negative and reaping the most benefits.
Now is the time for governments to step up and act or else face a more rapid tumbling down the global pecking order. Politicians
and voters need to come to their senses.
And soon.